Business Times

SL deficit increased ‘dramatically’ in 2009

Sri Lanka's fiscal deficit increased a "fairly dramatic" manner last year to around 10% of Gross Domestic Product (GDP) and thus a major correction is needed, according to Narhari Rao, Lead Economist of the Sri Lankan Resident Mission of the Asian Development Bank (ADB).

Speaking at the launch of the ADB's Asian Development Outlook 2010 report in Colombo this week, Mr. Rao also noted that Sri Lanka's economy would fully recover from the effects of the global financial crisis by 2010 as suggested by the ADB's 6% growth forecast for the country.

Further, he indicated that he expects greater domestic and foreign investment with the situation improving but also cautioned that this was contingent on the yet-to-be-announced national budget and the maintaining of current global conditions. He additionally noted that the country was expected to achieve 7% growth by 2011 while inflation for 2010 remained at 6.5%.

At the same time, he also advised that the country’s budget expenditure should be brought down to 23.3% of GDP in 2010 and 22.5% in 2011, fiscal deficit should be reduced to 8% in 2010 and 7% in 2011, and tax revenues should be increased to 15.5% of GDP by 2011.

Mr. Rao also suggested that exports would be "below potential" this year due to the ongoing GSP+ issues, while imports would increase by at least 20% due to greater consumer demand and increasing oil prices. This after a drop in imports of 29.5% last yea.

It was also revealed at the event that the Sri Lankan government had allocated US$ 2.7 billion for Northern and Eastern province development expenditure between 2010 and 2012. Meanwhile, according to ADB Country Director Richard Vokes, the primary economic focus of the new parliament should be minimising fiscal decline while improving earned revenues and better expenditure management.

In addition, there should be rehabilitation and reconstruction of the North and East with assurances that long term infrastructure was put in place. Finally, he noted that a agreed upon power sharing or devolution package should be negotiated and finalised as soon as possible.

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